How good are you at market timing? What would be the consequences of a 50% decrease in the account value? What are the other financial resources she can draw on to pay for college?

General advice is to de-risk and move towards cash if you are going to be spending it soon as you wouldn't want to risk a significant loss in value and not be able to buy that house/car/education.

Agreed. The closer you are to needing the $ for expenditures, the less risky you should be in how you handle the $. If it were my money and I knew for certain I would need all of that 31k in three years I'd be keeping it in a high yield savings account or CD's. Not worth risking a potential market correction or recession wiping out a substantial portion of your funds by being invested in the market.

How good are you at market timing? What would be the consequences of a 50% decrease in the account value? What are the other financial resources she can draw on to pay for college?

General advice is to de-risk and move towards cash if you are going to be spending it soon as you wouldn't want to risk a significant loss in value and not be able to buy that house/car/education.

Agreed. The closer you are to needing the $ for expenditures, the less risky you should be in how you handle the $. If it were my money and I knew for certain I would need all of that 31k in three years I'd be keeping it in a high yield savings account or CD's. Not worth risking a potential market correction or recession wiping out a substantial portion of your funds by being invested in the market.

Thank you for responses. ESA is at vanguard. She will need some of the money in 3-4 years. Most likely not enough to cover all 4 years /unless she receives scholarships. In you opinion do you think a Bond Fund is not a good option due to increased risk as opposed to CDs or HY savings

Thank you for responses. ESA is at vanguard. She will need some of the money in 3-4 years. Most likely not enough to cover all 4 years /unless she receives scholarships. In you opinion do you think a Bond Fund is not a good option due to increased risk as opposed to CDs or HY savings

A 5-year CD and a bond fund with a 5-year duration both have about the same interest rate risk. The difference is that the bond fund will continue to maintain that same risk indefinitely, while the 5-year CD will gradually lower its duration/risk as it approaches maturity.

A 5-year bond fund will lose value if interest rates jump tomorrow, but it will make up that loss over 5 years in gradually increasing interest payments. That's fine if it happens tomorrow and you don't need the money for 5 years. But if you need the money in 5 years and rates jump in Year 4, there won't be time to recoup all your lost principal.

The savings account has zero duration risk, but you pay for that safety with reduced yield.

Thank you for responses. ESA is at vanguard. She will need some of the money in 3-4 years. Most likely not enough to cover all 4 years /unless she receives scholarships. In you opinion do you think a Bond Fund is not a good option due to increased risk as opposed to CDs or HY savings

A 5-year CD and a bond fund with a 5-year duration both have about the same interest rate risk. The difference is that the bond fund will continue to maintain that same risk indefinitely, while the 5-year CD will gradually lower its duration/risk as it approaches maturity.

A 5-year bond fund will lose value if interest rates jump tomorrow, but it will make up that loss over 5 years in gradually increasing interest payments. That's fine if it happens tomorrow and you don't need the money for 5 years. But if you need the money in 5 years and rates jump in Year 4, there won't be time to recoup all your lost principal.

The savings account has zero duration risk, but you pay for that safety with reduced yield.

CD's are probably your best bet in this case.

Looks like can only buy Funds through the ESA at Vanguard and not CDs. Interesting. I may need to call Vanguard on Tuesday to find out how to purchase CDs.